As you know last month we significantly increased the AIM Global High Conviction Funds weighting in Australia. This was based off the view that ASX200’s underperformance of Wall St in US dollar terms was just too wide (-19%) and secondly that the Australian economy is doing better. Thirdly, I think there’s “growth at a reasonable price” to be found in the right Australian industrial equities.
The final piece of the puzzle is we think the Federal Reserve’s much anticipated “lift off” will in reality be a “dovish hike”. I explain next week what that means, but it should see the AUD and ASX200 rally into year-end as macro hedge fund traders cover their massively profitable short positions. We maintain the target of ASX200 at around 5400 in January.
Interestingly, most of the earnings growth to be found in Australian equities is NOT in the top 20 heavyweight stocks. They tend to offer reliable dividend yield, but lack earnings growth. We have, and continue to, look for earnings growth (at a reasonable price) outside of the top 20 heavyweight stocks.